Nutanix's (NTNX +8.07%) year went from bad to worse following the May 25 release of the company's fiscal 2022 third-quarter results (for the three months ending on April 30) as investors punished the stock over management's woeful guidance.
Share prices of the enterprise cloud platform provider plunged 23% in a single session despite impressive growth in the company's sales and billings, as well as a reduction in its adjusted loss. Let's see what went wrong for Nutanix last quarter, and check why investors may want to take advantage of the 56% decline in the company's share price this year to buy this cloud stock for the long run.
NASDAQ: NTNX
Key Data Points
Nutanix delivers a solid report but gets rattled by near-term disruptions
There was a lot to like about Nutanix's quarterly report. The company's revenue was up 17% year over year to $404 million, while the non-GAAP gross margin increased 160 basis points to 83.3%. Nutanix reported an adjusted loss of $0.05 per share for the quarter. This was a big improvement over the prior-year period's loss of $0.41 per share thanks to a higher proportion of sales coming from the subscription model.
The company's cumulative customer count increased 13% year over year to 21,980. More importantly, Nutanix saw a spike in customer spending thanks to healthy demand for its cloud platform, which allows clients to adopt a hybrid multi-cloud model. This is evident from the nice jump in the number of customers with lifetime bookings of $1 million last quarter.
Nutanix had 1,747 customers who spent at least $1 million on its offerings at the end of fiscal Q3, an increase of 22% over the prior-year period. What's more, there was a nice increase in the number of high-value customers. The number of customers with lifetime values of $5 million to $10 million increased 21% year over year. There was a 26% year-over-year spike in the number of customers who have spent at least $10 million in lifetime bookings on Nutanix's solutions.
It is worth noting that 92% of Nutanix's revenue and billings last quarter came from the subscription business. Also, the company's annual recurring revenue -- which is the sum of the annual contract value of all subscription and services contracts at the end of the quarter -- increased 46% year over year to $1.1 billion.
However, Nutanix's near-term outlook was clouded by supply chain delays at its hardware partners. Nutanix usually books a significant portion of its orders toward the end of a quarter. But unexpected supply chain challenges at the end of the fiscal third quarter meant that its new subscription contracts would start at later-than-expected dates, depending on the availability of hardware from its partners. Additionally, Nutanix ran into higher-than-expected attrition in its sales force last quarter, which further impacted the company's outlook.
Thanks to these challenges, Nutanix is now forecasting fiscal 2022 revenue of $1.54 billion, down from its earlier expectation of $1.63 billion in revenue. The company's fiscal fourth-quarter revenue forecast of $350 million and billings forecast of $180 million have also fallen way short of Wall Street's expectations. Analysts were looking for $439 million in revenue from Nutanix this quarter, along with billings of $215.8 million.
However, Nutanix's management is confident that the near-term challenges don't point toward a slowdown in demand for its hybrid cloud platform.
Investors shouldn't miss the big picture
Nutanix's growing customer base and spending indicate that it is operating in a fast-growing space. The company estimates its total addressable revenue opportunity in the hyperconverged infrastructure (HCI) market -- which refers to the integration of different data center elements such as storage, computing, networking, and management into a software-defined platform -- could hit $30 billion by fiscal 2025.
What's more, Nutanix also sees an additional $30 billion worth of total addressable opportunity in adjacent markets as well, which brings its overall revenue opportunity to $60 billion. For comparison, Nutanix's total addressable opportunity in the hybrid cloud and adjacent markets stood at $39 billion in 2020. So the rapid expansion of Nutanix's end-market opportunity should help the company sustain its top-line growth.
On the other hand, Nutanix expects to bring down its sales and marketing expenses to 43%-47% of revenue by fiscal 2025, compared to 79% in fiscal 2020. This explains why analysts expect its losses to decline substantially in the next three years.
NTNX EPS Estimates for Current Fiscal Year data by YCharts
So if investors look past the near-term problems that Nutanix is facing on account of factors out of its control, buying the stock looks like a no-brainer thanks to the massive addressable market it is sitting on. Even better, investors are getting a good deal on Nutanix right now, as the stock is trading at just two times sales -- compared to its five-year average sales multiple of five -- and that's despite reporting robust double-digit percentage growth last quarter.
All of this indicates that buying Nutanix looks like a good idea following its sharp decline this year, as the cloud stock could regain its mojo and step on the gas in the long run.
